Student loan debt remains one of the hottest topics of conversation as we move into 2022 — and it’s no surprise.
However, the Public Service Loan Forgiveness (PSLF) program is expected to see a boost this year as the expanded eligibility waiver remains in force until the end of October 2022. While this might offer relief from student debt burdens for up to two million borrowers, there are concerns this program could cause ongoing inequality.
Let’s look at some of the reasons that loan forgiveness could potentially remain out of reach for those who most need it.
First, it’s important to note that if you’re in student loan default, you can’t take advantage of programs like PSLF. The Center for American Progress points out that the national default rate is around 10.8%. For specific populations, though, the default rate is much higher:
- Veterans: 46%
- First-generation college students: more than one-third
- Students with mental health conditions: 60%
- Black or African American: 49%
- Hispanic or Latino: 36%
- Native American or Alaska Native: 41%
And student loan borrowers with children have double the default rate of those without children. Seventy percent of borrowers with children are single parents.
Unless these disadvantaged groups can get out of default in time to take advantage of the expanded waiver, they will likely continue to struggle, dealing with the drawbacks of default, including garnished tax refunds and possibly reduced federal benefits.
If the above groups fail to apply for programs like the PSLF limited waiver in large numbers, the most highly educated, most indebted borrowers will disproportionately benefit.
Forgiveness application barriers under the expanded PSLF waiver
There are also difficulties related to applying for forgiveness under the waiver. Forgiveness isn’t automatic. You need to document your eligible payments and qualifying employment going back to October 2007.
Those with low incomes and other disadvantaged groups are less likely to have the time and resources to go through this process. Internet access is often needed to complete these tasks or find necessary information and forms.
According to the Pew Research Center, 43% of low-income adults don’t have broadband internet access at home. About 41% of low-income adults don’t own a computer or laptop. Even with tablets, low-income earners are at a disadvantage, with only 41% of those earning under $30,000 per year owning a tablet.
Those with higher incomes are much more likely to have these technology tools. The digital divide remains much more prominent than many might expect. Although low-income consumers turn to smartphones to fulfill the need for internet access and connectivity, the small screen isn’t always adequate to meet the needs of those trying to fill out forms or find the information they need.
While it might be tempting to suggest going to the library for free access to the internet and computers, it’s important to note that not all libraries are open during hours that low-income workers are off work. Taking a day off work — and losing pay as a result — isn’t always feasible for low-income earners.
These bureaucratic barriers are likely to increase the inequality of loan forgiveness in 2022, even with an expanded program.
Another problem with ensuring those from marginalized and disadvantaged communities have access to PSLF and other forgiveness programs is loan servicers and their interests.
First, for some borrowers (especially those with older loans under the FFEL program), the expanded waiver allows them to consolidate their federal debt and receive immediate forgiveness if they’re eligible. Servicers have a vested interest in avoiding this process. They make much less money in these cases.
Another issue is that some servicers drag their heels when processing income-driven repayment applications. They might put applicants in forbearance — allowing interest to accrue — for up to 60 days.
In the past, the Consumer Financial Protection Bureau (CFPB) has sued federal student loan servicers for encouraging borrowers to enter forbearance programs instead of income-driven repayment. Additionally, servicers have been penalized for their actions, which include a lack of transparency and not correctly applying student loan payments to balances.
Many of those from disadvantaged and marginalized groups have a hard time accessing information that would allow them to challenge their servicer and get the information needed to be on income-driven repayment — and better qualify for forgiveness at some point.
The Biden Administration waiver makes sense for those who should have been on an income-driven plan the whole time but weren’t. However, getting the information needed to fight with a loan servicer is difficult when you have a time-consuming, low-income job and limited access to the internet.
The CFPB has identified 2022 and the end of the relief measures for student loan borrowers as a source of heightened risk for federal student loan borrower harm. The current relief has been extended through May 2022, but once regular student loan payments resume, the CFPB warns, there could be problems.
One recent survey found that 89% of fully-employed student loan borrowers weren’t ready to resume payments, and it’s likely this disproportionately affects those from disadvantaged and marginalized groups.
The CFPB points out that the Covid-19 pandemic has created even larger disparities in equity for racial minorities and those in lower socio-economic groups. These gaps appear throughout the education and student loan systems and put these vulnerable populations at greater risk for harm when repayment resumes — and when they don’t have the same access to forgiveness programs.
Another issue is that four federal loan servicers are planning to stop servicing these loans. The CFPB warns that borrower harm is likely as 16 million borrowers are transferred to new servicers.
Potential demographics of borrowers receiving relief under the PSLF waiver
If you look at default statistics, borrowers of color, lower-income borrowers, and borrowers who went to for-profit schools have higher default rates.
In some cases, this is due to being unaware of options, such as IBR, that could lower payments to a manageable level.
The administration designed the PSLF waiver under constraints of the HEROES Act of 2003, which gives unique powers during the pandemic national emergency that can’t remain permanent.
The PSLF waiver requires the complex step of a borrower identifying and consolidating non-Direct Loans. Given the statistics on default rates above, we expect that regardless of actions taken by the Department of Education, many disadvantaged will be left out.
For those who qualify, the expanded PSLF waiver and other forgiveness programs could be helpful. Unfortunately, inequality remains rampant as disadvantaged and marginalized groups have limited access to information and resources to take advantage of these programs.
Additionally, the lack of transparency and data (the Department of Education is notoriously slow and behind with stats and data) exacerbates the issue, making it even more difficult for those without means to access beneficial programs.
Until we address these inequities in the system, loan forgiveness is likely to remain out of reach for those who need it the most.